Saturna’s SRIs provide defensive returns

The ROIs vary depending on the type of asset class the investor invested in, which market they invest and the time they entered the market

by SHAZNI ONG / Source:

PROSPECTS for Shariah, environmental, social and governance (ESG) and socially responsible investments (SRIs) remain bright more so in economic downturns.

Saturna Sdn Bhd president Shahariah Shaharudin (picture) said Shariah and ESG focused funds perform particularly well as they are a defensive asset class.

“The returns on investment (ROIs) vary depending on the type of asset class the investor invested in, which market they invest and the time they entered the market.

“Generally, the return from equity is volatile and we are in an era of very low yield for fixed income instruments. During this time, the ESG focused investment tends to be more stable,” she told The Malaysian Reserve in an email interview recently.

Citing an example, Shahariah said the firm’s funds have generally outperformed the benchmarks in the current Covid-19-related pullback.

Saturna Capital’s two flagship funds, Amana Income Fund and Amana Growth Fund saw returns of 8.68% and 17.7% respectively for three years ended June 30. Both funds are Shariah-compliant and ESG focused, she said.

“For the Kuala Lumpur (KL) office, our FTSE Shariah World Developed Mandate has provided average double-digit returns for the last three years,” she said.

Shahariah said the younger crop of investors tend to ask for sustainable/responsible investing.

“They care about protecting the nature around them. SRI growth is coming from three main areas namely regulators, supply and demand.

“Regulators contribute to harmonising and standardising the guidelines, product supply comes from the asset managers and banks, while demand is driven by institutional, corporate and individual investors,” she said.

Shahariah said the firm is projecting a robust demand over the next decades as sensitivities towards SRI increase.

“The more incidents — like the oil spill in the Gulf of Mexico, the Covid-19 pandemic — the more SRI becomes appealing to investors.

“Sustainable responsible Islamic Investing can be helpful in the current economic crisis; for example, good financial prudence like low debt level will help the company survive the crisis.

“Another example, fairness in employee rights may lead to lesser layoffs and employees agreeing to pay cuts to overcome the crisis period,” she said.

Shahariah said Saturna promotes sustainable responsible Islamic investing which is more defensive in times of stress.

“We would recommend both equity and sukuk asset classes to our investors like Islamic ESG Global Equity/Islamic ESG Asean Equity and Global Sukuk,” she said.

Shahariah noted the bond or sukuk market has come under stress due to historically low interest rates, recently.

Saturna Capital portfolio manager Patrick Drum pointed out the green sukuk is still a small market in comparison to the total green bond market.

As of mid-2020, the total size of the green bond market was circa US$672.2 billion (RM2.82 trillion), whereas the size of the green sukuk market is circa US$6.1 billion, representing less than 0.1% of the entire green proceeds use market.

“The green bond market includes 2,269 issues, while the green sukuk market comprises 105 issues outstanding,” he said.

Shahariah said there are still attractive fixed income opportunities in selected sovereign countries such as Australia and the Gulf Cooperation Council member countries.

“Investment-grade corporate papers also offer attractive yield, especially from issuers that have embedded ESG practices.

“In view of the low deposit rates offered by banks, equity will be a more attractive asset class for investment,” she said.

Domestically, Shahariah said the firm sees sizeable industry potential. The Islamic fund assets are expected to reach the US$216 billion mark by 2024.

In Malaysia, the Islamic asset management industry has about 25% market share and has the potential to reach 50%, while ESG investing has less than 2%-3% market share.

“The industry is even much less penetrated in other regions of the world, thus there is room for growth,” she said.

Based on Schroders 2019 Global Investors Study, 66% of Asian respondents said they would consider sustainability factors when selecting an investment product.

Most ESG and Shariah investments tend to overlap helping strengthen the case for Sustainable Responsible Islamic investing.

Saturna Group is managing US$4.3 billion of assets, globally. The returns it is giving on average is more than 8% per annum, depending on the funds/mandate type, strategies and time frame.

The company did not disclose how much it manages for the Employees Provident Fund, but said it has been giving the retirement fund double-digit return per annum for the last three years.

Its KL office’ investment, operation, finance and compliance are all done in-house. The investment team here is part of the Saturna Capital’s global sector coverage which covers the US, Europe and the Asia Pacific for both equity and sukuk, Shahariah adds.